What Are Experts Saying about Home Prices?
Last week, a very well-respected real estate analytics firm surprised many with their home price projection for the next twelve months. CoreLogic, in their latest Home Price Index, said:
“The economic downturn that started in March 2020 is predicted to cause a 6.6% drop in the HPI by May 2021, which would be the first decrease in annual home prices in over 9 years.”
The forecast was surprising as it was strikingly different than other major analyst projections. Six of the other eight forecasts call for appreciation, and the two projecting depreciation indicate it will be one percent or less. Here is a graph showing all of the projections:
There’s a simple formula to determine the future price of any item: calculate the supply of that item in ratio to the demand for that item. In housing right now, demand far exceeds supply. Last week, mortgage applications to buy a home were 33% higher than they were at the same time last year. The available inventory of homes for sale is 31% lower than last year. Normally, these numbers indicate that home prices should continue to appreciate.
Bottom Line
Because of the uncertainty with the pandemic, any economic prediction is extremely difficult. However, considering the limited supply of homes for sale and the tremendous demand for housing, it is difficult to disagree with the majority of analysts who are calling for price appreciation.
